Major market indexes spent most of the week chopping back and forth as good news is bad news and bad news is good news. Anything that feeds into the idea that the economy is slowing faster than expected and so the Fed will soon be forced to back away from its current hawkish policy stance sends the indexes higher. That was the case on Thursday when the ADP employment report came in light at 128,000 jobs vs. expectations of 300,000 and the indexes rallied sharply, with the NASDAQ posting a 2.69% gain on the day. On Friday, that gain was entirely reversed as good news became bad news when the Bureau of Labor Statistics monthly jobs report showed 333,000 new non-farm payrolls vs. expectations of 298,000.
This kept the market in a choppy range as the NASDAQ Composite holds near-term support along its 20-day exponential moving average following a gap-up move through the line last week. Currently we do not see this as a playable move in the spirit of a glorious new bull market phase, as those who claim the market is currently in a state of a confirmed rally are claiming. The leadership characteristics from both a fundamental and technical perspective that we would expect to see developing in a nascent bull market phase are simply not there. Our expectation for now is that the current rally will likely run its course, perhaps sooner, perhaps later, and end in a manner similar to the summer bear market rallies seen in previous major bear markets in 2000 and 2008.
Extreme bearish sentiment as measured by the American Association of Individual Investors sentiment surveys is now dissipating from levels not seen since 2009. At that point the market had been in a bear market since October 2007, yet in 2022 we are barely five months into the current decline. How this all plays out will likely depend on the dynamics that develop around a hawkish Fed and a rapidly slowing economy, combined with a general popping of various financial bubbles in stocks, crypto-currencies, and real estate. \While it is possible for tactical swing-traders to capitalize on sharp moves in individual stocks long or short, this is not a market for intermediate-term trend-followers seeking to build positions within any unlikely longer term bullish trend. Cash, therefore, remains king.
The Market Direction Model (MDM) remains on a SELL signal.